1. THE BACKGROUND

  1.1  The Third Parties (Rights against Insurers) Act 1930 was passed in tandem with the Road Traffic Act 1930, the latter for the first time making motor liability insurance compulsory in the UK. The purpose of the former was to ensure that the injured victim of a negligent driver, whose claim would almost certainly render the negligent driver insolvent, would not be in the position that his claim generated sums which would simply go into the bankrupt's estate so that he would at best obtain a share of them: that was the position at common law (Hood's Trustees v Southern Union [1928] Ch 793; Re Harrington Motor Co [1928] Ch 105). The 1930 Act, a very short measure, provided that if the victim had obtained judgment against the wrongdoer, which had not been satisfied, then the victim could enforce that judgment against the insurers. The Road Traffic Act 1934 created a specific right of this type in motor insurance (which still exists), and since that date the 1930 Act has operated to support other forms of compulsory and voluntary liability insurance. It has proved to be particularly significant in employment personal injury claims, where insurance has since 1972 been compulsory but the regime is far less impressive than that which applies to motor accidents under what is now the Road Traffic Act 1988. But for the 1930 Act many asbestos victims would have gone uncompensated.

  1.2  The 1930 Act has proved to have many deficiencies, and the most blatant of them—the inability of an injured victim to bring an action against a defunct company so as to provide the trigger for a claim against its liability insurers (exposed in Bradley v Eagle Star [1989] 2 WLR 568)—was commendably reversed with retroactive effect by the Companies Act 1989 which provided a mechanism for the revival of defunct companies. There have been other minor amendments to deal with new forms of insolvency and the statutory creation of limited liability partnerships. The measure for the first time attracted the attention of the Law Commissions when it was preparing the report which led to the Contracts (Rights of Third Parties) Act 1999, and the deficiencies of the 1930 Act led the Law Commissions to produce their 2001 Reports and Draft Bill (Law Commission No 272; Scottish Law Commission No 184).

  1.3  Following the publication of those Reports, a series of cases involving the 1930 Act were decided by the English courts, and something of a sea-change in attitude is evidenced in the decisions: a number of the Law Commissions' recommendations were, in other ways, effectively implemented by the courts. The judicial revisions were ad hoc and imperfect, and there remains a clear need for the implementation of the Law Commissions' recommendations.

  1.4  The 2009 Bill is a little different in structure from that drafted in 2001, but remains faithful to most of the drafting of the original. It should be stressed that there is no general dispute that a reformed 1930 Act is essential: equivalent measures exist in most, if not all, common law jurisdictions, and in many of those jurisdictions the 1930 Act has been adopted as a model but with modifications making it more effective. There is some room for dispute as to whether the 2009 Bill goes far enough in all respects, but no room for dispute that the measure should go ahead. In my opinion the Bill is fit for purpose, and I have only very minor suggestions for its improvement.

  1.5  The 1930 Act works on the basis that if a third party has established and quantified the liability of the insured, and the insured is or becomes insolvent, the third party is given a direct claim against the insured's liability insurer. The third party has no rights against the insurers in advance of the insured becoming insolvent, so that the Act by its terms does not countenance the possibility of the insured obtaining information about the policy from the insurers in advance of the claim against the insured being established and quantified, and it also does not set out any mechanism by which the third party can establish whether or not the insurers are liable to satisfy any judgment that the third party might obtain against the insured. To overcome these deficiencies, the courts have developed the idea that a third party pursuing an insolvent insured has "contingent" rights against the insurer as soon as the insured becomes insolvent (Cox v Bankside [1995] 2 Lloyd's Rep 437; Spriggs v Wessington [2005] Lloyd's Rep IR 474; Re T & N (No 4) [2006] EWHC 1447 (Ch)). Those contingent rights give the third party the right to obtain insurance information in advance of any judgment against the insured (Re OT Computers [2004] EWCA Civ 653), the right to prevent the insurer from varying the terms of the policy once the insured has become insolvent (Centre Reinsurance International v Freakley [2005] EWCA Civ 105), to be joined to any proceedings in which the insurer seeks a declaration of non-liability under the policy (Chubb Insurance v Davies [2005] Lloyd's Rep IR 1) and, arguably, the right to seek declaratory relief at an early stage. The 2009 Bill provides for the same form of transfer of rights following the insolvency of the insured, but removes much of the need for the "contingent rights" fiction, by expressly conferring upon the third party the right to obtain information and declaratory relief in advance of insolvency. However, there is nothing in the Bill which is inconsistent with the contingent rights principle, and it may prove to be important in some of the situations outlined in this paragraph.

2. THE TRANSFER

  2.1  The Bill preserves the two key uses of the 1930 Act. The first is the right of a third party who wishes to pursue an insolvent insured, to turn to the insured's insurer once a judgment has been obtained. The second is the ability of the third party to use the 1930 Act as a method of enforcing a judgment against a solvent insured. The third party can bring an action against the insured, obtain a judgment and, if it is not satisfied, then insolvency proceedings can be initiated against the insured, thereby giving TP direct access to the insured's liability insurer.

  2.2  Under clause 1(1) there is a transfer of rights if "a relevant person" (RP): (a) incurs liability against which there is insurance; or (b) an insured person having incurred liability becomes a "RP". The concept of "RP" is defined in clauses 4 to 7, and in essence means a person who has become subject to an insolvency procedure (referred to for convenience in what follows, as having become insolvent). So clause 1(2) has the effect that if a person is insolvent and has incurred liability, or has incurred liability and then becomes insolvent (probably because he has been made the subject of insolvency proceedings by the third party (TP)), there is a transfer of the RP's rights to the person to whom liability was incurred (TP) and a direct action can be brought against RP's insurer.

  2.3  Under clause 1(3), TP can bring proceedings in respect of transferred rights against the insurers without having established and quantified RP's liability, but TP cannot enforce those rights without having established and quantified that liability. The insured's liability can be established or quantified, under clause 1(4) by: obtaining a judgment against the insured; obtaining an arbitration award against the insured; entering into a settlement with the insured (although a settlement can ultimately be challenged by the insurer on the ground that it is not in full or in part made on the basis of legal liability); or obtaining a declaration to that effect under clause 2. This is at the heart of the Bill. Under the 1930 Act, TP has to establish and quantify the insured's liability, and then show that the insured is insolvent, as a precondition to bringing an action against the insurer under the policy: an immediate action against the insurer pending the determination of the insured's liability is not possible (Post Office v Norwich Union [1967] 1 All ER 577). Under the Bill, once there is insolvency, TP can turn his attention to the insurer in order to establish the insurer's liability, but he cannot actually enforce the insured's rights until he has established and quantified RP's liability. He may do this by separate proceedings against the insured, or, more likely, by seeking a declaration as to the insured's liability in the same proceedings as have been brought to establish the insurer's liability under the policy. In practice, therefore, once the insured has become insolvent, TP will seek to establish and quantify the insured's liability to TP as a matter of law, and to establish liability under the policy, in a single set of proceedings.

  2.4  It has been held under the 1930 Act that a TP who obtains a judgment on liability against the insured, with damages to be assessed, can obtain an interim award from the insurer under the Civil Procedure Rules Part 23. It is not clear whether the Bill preserves this position.

  2.5  Clause 8 is concerned with the case in which the insured's liability to TP is less than the amount of the liability of the insurer to the insured, eg, because the policy covers defence costs. Clause 8 provides that the transfer of rights to TP is only for the former amount.

3. RELEVANT PERSONS

  3.1  The Bill applies only if the insured has become a RP by becoming subject to one or other insolvency provision. A good deal of consultation has taken place to make sure that the list of statutory insolvency procedures is exhaustive. Most significantly, the Bill has been extended to individual voluntary arrangements, a lacuna under the 1930 Act (Re Greenfield 1998, unreported). The Bill does not cover contractual insolvencies, as where a receiver is appointed under a floating charge following the occurrence of an event which causes the floating charge to crystallise. The need for change here was considered but rejected by the Law Commission, on the basis that neither TP nor the insurers would be aware of crystallisation.

  3.2  As regards individuals, clause 4(1) lists the relevant insolvency procedures. The clause does not deal with a discharged bankrupt, as the clause is limited to the situation in which a bankruptcy order is "in force". However, the position of a discharged bankrupt was dealt with by the Court of Appeal in Law Society v Shah [2007] EWHC 2841 (Comm), it there being held that if a bankrupt has been discharged then the claim against him is not extinguished but simply becomes unenforceable against him, so that it remains open to TP to establish and quantify the liability of a discharged bankrupt for the purpose of obtaining judgment against the bankrupt's insurer. In the light of this decision the Law Commissions' original Bill, which referred to discharged bankrupts, has been modified. A deceased insured is to be treated in the same way as a live one (clause 5).

  3.3  As regards legal persons (both companies and partnerships), clause 6(1)-(2) lists the relevant insolvency procedures. Clause 6(1)(a) is concerned with arrangements with creditors: the company remains the RP until its liabilities are transferred, at which point the transferee becomes the RP (clause 6(5)). As far as a company is concerned, clause 6(1)(b) provides that if the company has been dissolved and not restored to the register, it remains a RP. The effect is that proceedings can be initiated against a dissolved company's insurer in order to establish its liability (under clause 2(2)(b) without the need to apply to the court for the restoration of the company to the register, as is required under the existing law.

4. CONTRACTS WITHIN THE BILL

  4.1  The Bill applies only to rights under a contract of insurance (clause 1(5)). This term is not defined, but it may be assumed that it encompasses P&I Club rules which technically do not qualify as contracts of insurance to the extent that the Club does not undertaken any legal liability to pay but rather merely has a discretion to do so.

  4.2  The Bill does not apply to reinsurance (clause 15, continuing the policy of the 1930 Act). The clause may give rise to problems in a very small number of cases, as it is not always clear whether an insurer's liability has arisen under a contract of insurance or under some other form of arrangement (eg, a captive insurer, a bond or an extended consumer warranty—the latter was discussed inconclusively in Re OT Computers [2004] EWCA Civ 653). These issues are quite properly left to be resolved as and when they arise.

  4.3  However, under clause 16, the Bill does apply to a liability whether or not voluntarily incurred. The purpose is to catch liability only in contract as well as liability in tort. Most liability policies do not extend to liabilities voluntarily incurred, unless there is a parallel tortious action, but the Bill brings such claims within its scope where the policy covers them. The provision codifies the decision of the Court of Appeal in Re OT Computers [2004] EWCA Civ 653, which extended the 1930 Act to legal expenses incurred under contract. It may be noted that at the time of the Law Commissions' Reports the 1930 Act was thought not to cover voluntarily incurred liabilities (Tarbuck v Avon Insurance [2002] Lloyd's Rep IR 393), a decision which the Law Commissions thought should be reversed. The Court of Appeal in Re OT Computers did just that, anticipating the 2009 Bill.

5. EFFECT OF TRANSFER ON CLAIM AGAINST INSURED

  5.1  Where the insured's rights have been transferred to TP, clause 14(1) prevents TP from enforcing his claim against the insured itself insofar as the claim is covered by insurance. The claim has to be brought against the insurer for the insured sum, and a claim against the insured remains only in respect of uninsured sums. Thus the assured can proceed against the insured only for the amount of any deductible under the policy and also in respect of the amount by which liability exceeds the amount of the insurer's liability (clause 14(6)(b)). If there is some arrangement with creditors, then clause 14(2)-(3) take the insured sums outside those arrangements and confer upon TP a prior claim on the policy moneys.

  5.2  If the insurer has insufficient funds to meet a claim, TP may also proceed against the insured for the relevant sum (clause 14(6)(a)) but under clause 14(7) only to the extent that TP's claim is not protected by the Financial Services Compensation Scheme (which applies when an insurer becomes unable to pay claims).

6. DECLARATORY RELIEF

  6.1  A person (P) who claims that rights have been transferred to him under a contract of insurance but who has not yet established and quantified the insured's liability, has the right to seek declaratory relief: clause 2(1), (6) and (8). The clause refers to an "insured" rather than to a "relevant person", to distinguish between an insured who has become insolvent and one who has not, thereby making the point that clause 2 is triggered by a mere claim that the insured has become insolvent. In the same way, it is to be assumed that clause 2 refers to P rather than TP, because a TP is a person who has established that rights have been transferred to him.

  6.2  P is entitled to seek a declaration in respect of: (a) the liability of the insured to P; or (b) the insurer's potential liability to P (clause 2(2)). Clause 2(2)(a) is concerned with the validity of P's claim against the insured, and clause 2(2)(b) is concerned with whether the insured has become insolvent (failing which there cannot be a transfer) and whether there is liability under the policy (see clause 2(11)). The effect is that the liability of the insured, and the liability of the insurers, can be resolved in a single set of proceedings. Clause 2(6) allows the court to give an "appropriate judgment" in conjunction with a declaration, which will generally mean a money judgment. All of this means that there is no longer a need for the insured to initiate separate preliminary proceedings to resurrect a defunct insured's company in order to attempt to establish and quantify its liability so that the claim can be pressed against the company's insurer and can lead to judgment.

  6.3  The right to a declaration (the court has no power to refuse) is, under clause 2(3), subject to any defence on which the insurer may rely, In relation to (a) the defence will be in respect of the substantive claim or its quantum, and in relation to (b) it will be the absence of the insured's insolvency or a defence under the policy. These points are amplified later in the clause. If declarations under both heads are sought, the insurer may be faced by the possibility of being forced to run conflicting defences. An example may be a product liability matter, where the defence to the claim by P against the insured is that the product was not defective, and the defence to the claim by the insured under the policy is that the defect in question is excluded by the policy wording. In such a case the insurer is perfectly entitled to run alternative defences.

  6.5  If a declaration is sought against the insurer in respect of the insured's liability to P under clause 2(2)(a), then clause 2(4) states that the insurer can rely upon any defence that would have been open to it in proceedings brought against the insured. However, clause 2(5) provides that this is subject to clause 12. Clause 12(1) applies to the situation in which P has commenced proceedings against the insured within the limitation period applicable to the claim (the statutory limitation period for a claim in contract or tort, as the case may be) and the claim has not been resolved (clause 12(3)), but the limitation period has expired in the course of those proceedings. In such a case, clause 12(2) provides that the insurer cannot rely upon the expiry of the limitation period to defeat a further action by P against the insurer to seek a declaration as to the liability of the insured to P.

  6.6  Clause 2(9) provides that the insured can be made a defendant to the proceedings, which may have procedural advantages in respect of evidence and documents, and joinder also only binds the insured of there is joinder (clause 2(10)) which may be useful if the declaration relates to the insured's liability to P but there is loss outwith the policy. If the insured is a company which has been dissolved and not restored to the register, there is no need for P to apply to have the company restored to the register so that it can be joined to the proceedings. The action against the insurers can simply go ahead (by way of contrast to the present position). It is possible to contemplate the situation in which TP's claim against the insured arises under a contract containing an arbitration clause, or is a claim in tort which is nevertheless subject to arbitration, or which has become the subject of an ad hoc submission to arbitration once the dispute has arisen. If a direct claim is brought against the insurer for a declaration that the insured is liable to TP, the arbitration clause is irrelevant because the insurer is not a party to the arbitration clause. However, if TP has a residual claim against the insured, or for procedural reasons wishes to join the insured, the arbitration clause presents a potential bar to such joinder. The Bill does not reconcile this conflict.

  6.7  If a declaration is sought in respect of the insurer's liability under the policy, in accordance with clause 2(2)(b), he will have to do so within the limitation period, namely, six years from the date on which the insured's liability has been established and quantified. The Bill does not permit the insured to be joined to the proceedings if clause 2(2)(b) is the sole ground of application: I wonder whether there may be situations in which it would be useful to join the insured, so that all policy issues can be resolved in a single set of proceedings. As I understand it, CPR is to be amended to permit the insured to seek to be joined as co-defendant.

  6.8  If the policy contains an arbitration clause, the position under the 1930 Act and also the Bill is that P is also bound by it (Freshwater v Western Australia Insurance [1933] 1 KB 515). By clause 2(7) (which is clumsily drafted), at the same time as P seeks a declaration from the arbitrators as to the scope of the policy, he may also seek a declaration as to the insured's liability to P. The Law Commissions discussed this matter and concluded that such an approach was necessary to preserve the integrity of the arbitration. I am not sure about the wisdom of this. The arbitrator may be an expert on insurance law, but may—at P's option—be faced with quite separate issues arising under, eg, a construction contract, alleged breach of a copyright licence leading to allegations of infringement, or a personal injury claim. Again, the tribunal may be appropriately constituted for an insurance dispute (a legally qualified chairman and two market "wingmen" is typical), but a three-arbitrator tribunal may be wholly inappropriate for the liability matter in question. The insured, through its insurers, may find himself defending an arbitration in the absence of any arbitration agreement (particularly if—and this is not clear—clause 2(9) permits the insured to be joined the proceedings where the arbitrator is asked to deal with clause 2(2)(a) issues). Also, there may be aspects of the arbitration agreement which are inappropriate to a hearing on liability, eg, an agreement to exclude judicial review for error of law under section 69 of the Arbitration Act 1996. Finally, an arbitration clause is unenforceable in a consumer contract, but P may be a consumer who could not as a matter of law be required to pursue his dispute in arbitration: the Bill removes that protection.

  6.9  The Bill does not deal with the situation in which the insurer takes pre-emptive action in advance of any judgment in favour of P against the insured, and seeks a declaration that it is not under any liability for any claim which may be made by P against the insured. Chubb Insurance v Davies [2005] Lloyd's Rep IR 1 recognises the right of P to be joined to such proceedings, in order to prevent a default judgment where the insured has no interest in defending them. Presumably this right is retained where the insured has, or where P asserts that the insured has, become insolvent.

7. INFORMATION CONDITIONS AFFECTING TRANSFERRED RIGHTS

  7.1  A major problem with the 1930 Act has proved to be non-compliance with claims conditions. There are numerous cases in which the insured has failed to give required information to the insurer in respect of a third party claim, often because the insured has become insolvent and has no interest in whether or not the claim is defended, and the insurer has been able to rely upon a breach of the claims condition. The only weapon open to the courts in this situation is to construe the claims condition as one which does not make compliance a condition precedent to liability, so that breach does not give a defence to a claim. Clause 9 is concerned in general with conditions imposed upon the insured's own rights under the policy (and also other conditions, although it is not clear what is caught by this category). The (unstated) basic rule is that TP has no better rights than the assured, but there are three modifications to this principle in respect of claims information.

  7.2  The first is that if TP satisfies the condition, then it cannot be relied upon (clause 9(2)). Some conditions require personal performance, so this provision is needed.

  7.3  The second is that any condition which requires the insured to provide information or assistance to the insurer is to be disregarded where the insured cannot comply because it is a dissolved corporation or a deceased individual (clause 9(3)). This would typically be the case under an occurrence or events policy which relates to an exposure or injury affecting TP occurring years in the past, and in respect of which a claim is made by TP at a much later date (clause 9(3)).

  7.4  The third is that, although any condition requiring the insured to provide information or assistance to the insurers remains in force insofar as the insured has not died or been dissolved, that condition is ineffective insofar as it requires the insured to notify a claim to the insurer (clause 9(4)).

  7.5  The effect of all of this is as follows.

  7.6  Take, first, a claims made liability policy. This will typically state that coverage for a policy year is triggered if either: (a) the insured notified to the insurer within the currency of the policy (and as soon as is reasonably practicable) any circumstances which may give rise to a claim—any later claim is then deemed to have been made in the policy year; or (b) a claim is actually made against the insured in the policy year. Nothing in the Bill prevents the insurer from denying liability for circumstances arising in the currency of the policy if those circumstances have not been notified. This will not matter if a claim arising out of those circumstances is subsequently made against the insured in the policy year, because the insured can rely upon (b) and cover is provided by reason of the claim and there is authority for the proposition that (a) and (b) are distinct heads of cover so that a breach of (a) does not prevent recovery under (b). However, it will matter if the claim against the assured is not made until a later year, because a later year's policy may exclude claims arising out of circumstances that could have been notified under an earlier policy. So, where notifiable circumstances have not been notified under an earlier year, a later policy may not respond to the actual claim made against the insured and there is nothing that TP can do about it. One possibility might be to prevent an insurer from relying on this type of clause if an insolvent insured has failed to notify circumstances in an earlier year. If, however, a claim under (b) has been made against the insured, and it is not notified, then clause 9(4) in effect wipes out the obligation to notify the claim. A claims made cover is, therefore, likely to be preserved only in the absence of circumstances notifiable under a previous policy year. Once a claim has been notified, the insured will be under a duty to co-operate with the insurer in defending the claim, by providing information and documents. The Bill allows the insurer to rely upon a condition precedent to recovery in the case of breach, although the Bill operates on the assumption (which is not necessarily accurate) that TP will, having exercised rights to obtain insurance information, be aware of the problem and will itself co-operate so as to bring itself within clause 9(2).

  7.7  Alternatively, the policy may be in exposure or injury form, thereby imposing long-tail cover on the insurer. The issues are slightly different, in that the insurer's obligation to indemnify does not rest upon a claim being made but upon an exposure or injury having taken place. Nevertheless, there will be a notification clause, and it is only notification of the claim itself that is protected, by clause 9(4). Thereafter, TP has obtain the necessary insurance information as soon as possible and then to act so as to bring itself within clause 9(2). Clause 9 is thus of limited effect.

  7.8   In some situations, the relevant information is provided by the insured to a broker, and the broker fails to communicate the information to the insurer. Plainly the insured has a claim against the broker in such a case, but it is far from obvious that the broker owes a duty of care to TP, and it is only rights under the policy—as opposed to claims against others—that are transferred under the Bill. This issue is outside the scope of the Bill.

8. PAY TO BE PAID

  8.1  P&I Club rules are written on a "pay to be paid" basis, so that the insured cannot recover from the insurer unless and until it has paid TP. Such clauses have been upheld under the 1930 Act (The Fanti and the Padre Island [1990] 2 All ER 705), with the effect that TP can rely upon a direct claim against the insurer only in the case where such a claim is not needed, ie where TP has been paid. Clause 9(5) retains that position generally, but clause 9(6) lays down an exception in the case of a marine policy where the claim is one for death or personal injury: in such a case pre-payment is not an enforceable requirement. Pay to be paid provisions are rarely (and possibly never) found outside P&I Club rules, so confining the exception to marine insurance is not problematic. A distinction is nevertheless drawn between personal injury claims and other claims, eg, cargo losses, collision liabilities, pollution liabilities and other risks covered by P&I Clubs. This may cause a difficulty where insurance is compulsory under international maritime conventions, although those conventions for the most part contain their own direct action rules. Clause 19 could be utilised for this purpose if necessary.

9. SET-OFF

  9.1  Clause 10 is concerned with unpaid premiums or other sums due to the insurer under the policy. Clause 10 provides that if the insurer possesses a right of set-off, then that can be enforced against TP. This codifies the position under the 1930 Act: Cox v Bankside [1995] 2 Lloyd's Rep 435. It is to be noted that clause 10 does not permit the insurer to exercise anything other than contractual set-off in respect of the "policy": that means that there is no set-off of sums payable by the insured under separate contracts, or indeed under earlier years of cover in respect of which the premium remains outstanding. It is also to be noted that the Bill does not rescue TP if the payment of premiums is not simply a debt obligation but rather is a condition precedent to the inception or continuation of cover (or even, in marine cases, a warranty). It is only where non-payment has no impact on cover but merely creates a debt that clause 10 is of assistance. Any modification of the Bill to override payment conditions would, however, contravene the principle that TP has no better rights than the insured.

10. OTHER CONDITIONS

  10.1  Other policy conditions, eg, warranties, fraudulent claims, compliance with statutory obligations and the like are unaffected by the Bill. This is the position under the 1930 Act (see, eg, Cleland v London General (1935) 51 Ll LR 156). The principle remains that TP is no better position than the insured would have been, unless TP is himself in a position to remedy the breach under clause 9(2). Equally, under a P&I Club or other mutual policy, the only right of the insured is to have a claim fairly and properly considered, so that TP has the same right and not an absolute right to be paid (see CVG Siderugicia v London Steamship Owners' Mutual [1979] 1 Lloyd's Rep 557). This is probably a sensible compromise.

  10.2  One unresolved issue under the 1930 Act is whether a public policy defence open to the insurer against the insured can be pressed against TP. It has been suggested that if the insurer's defence is based upon, eg, the criminality of the insured's act which gave rise to liability, that criminality is merely a personal bar which does not prevent a valid claim from being transferred (Total Graphics v AGF [1997] 1 Lloyd's Rep 559). It may be thought that the Bill does not affect this reasoning: if the policy is construed as providing a defence only against the insured personally, then there are valid rights to be transferred if the claim is brought by TP.

11. LIMITATION PERIODS FOR DIRECT CLAIMS

  11.1  The limitation period applicable to a claim by the insured against his liability insurers starts to run from the date on which the insured's liability has been established and quantified by judgment, award or settlement. So the insured has six years from that date to bring his claim. If TP has established and quantified the insured's liability, and commences direct proceedings against the insurers under the Bill, the limitation period for TP's claim is not to be any different. So the claim has to be brought against the insurers within the insured's limitation period.

  11.2  This gives rise to a problem where the insured has himself commenced proceedings against the insurers within the limitation period and then—in the course of the proceedings and after the expiry of the limitation period—has become insolvent and thus a RP. Prior to the insured becoming insolvent there are no rights under the Bill, so there is no possibility of a direct action until insolvency occurs. However, following the insured's insolvency, TP cannot commence a fresh action because he is time-barred. So he can keep within the limitation period only if the Bill transfers to him the right to take over the insured's proceedings against the insurers. However, the Bill does not achieve that: it merely transfers rights "under the contract" (clause 1(2)). It would seem therefore that the third party must take steps to enforce his judgment, award or settlement against the insured within six years, so that if the insured defaults an insolvency procedure can be initiated and a direct claim can be brought by TP against the insurers.

  11.3  There is a procedural solution under CPR 19.4, which permits one party to be substituted for another even after the expiry of the limitation period, so in effect the proceedings may be transferred from the insured to TP and the limitation position is preserved. But the CPR does not apply to arbitration. So the rights of TP could be defeated if the insurance contains an arbitration clause. There is complex case law on this point, and it remains unresolved. The Felicie [1990] 2 Lloyd's Rep 21 holds that fresh arbitration proceedings have to be commenced (so that any limitation period has to be satisfied), although it has since been assumed in cases not involving the 1930 Act—notably Baytur v Finagro [1991] 4 All ER 129—that existing arbitration proceedings can be assigned.

12. CONTRACTING OUT

  12.1  Clause 17 negatives any policy term which directly or indirectly avoids or terminates a policy, or alters the rights of the insured, in the event that the insured becomes a RP (ie, becomes insolvent) or an individual dies insolvent. This reflects the 1930 Act. It was held in The Fanti and the Padre Island [1990] 2 All ER 705 that a "pay to be paid" clause was unaffected because it did not alter the insured's legal (as opposed to practical) rights on insolvency: the insured's rights were always the same, solvent or insolvent, namely to pay in order to be paid. This provision is to be construed in the same fashion.

  12.2  The Bill does not cover the issue of changes in the insured's rights prior to his insolvency. This point may arise in two ways. First, the policy may provide for a variation of the insured's rights in given circumstances which do not amount to a statutory insolvency covered by clause 4 of the Bill: this possibility was left open in Centre Reinsurance v Freakley [2005] EWCA Civ 105. The second is that the insurer and the insured may enter into a settlement contract in respect of the claim before the insured has become insolvent. The 1930 Act does not preclude any such settlement (Normid Housing v Ralphs [1989] 1 Lloyd's Rep 265), at least in the absence of proof of conspiracy (alleged but not proved in Rowe v Kenway (1921) 8 Ll LR 225). This may give rise to a problem where an insured employer enters into a commutation agreement in respect of all future claims arising out of, eg, asbestos exposures (where the policy covers year of exposure), injuries (where the policy covers year of injury) or claim (if the policy is claims made). Future claimants may find that there is only a limited sum available to pay all claims (as in Re T&N Ltd (No 4) [2006] EWHC 1447 (Ch).

13. OBTAINING INFORMATION

  13.1  A major weakness with the 1930 Act is its failure to make proper provision for TP to obtain insurance information before launching a claim against the insured: if insurance is not in place, of limited value or for one or other reason unenforceable, then an action is simply a waste of time and money. The cases on the 1930 Act initially deprived TP of any right to information, and although that lacuna was remedied by the Court of Appeal in Re OT Computers [2004] EWCA Civ 653, the actual method for obtaining information has remained unresolved. Clause 11 of, and schedule 1 to, the Bill, deal with this matter in some detail. However, they appear not to achieve their intended purpose

  13.2  The right to obtain insurance information arises where A reasonably believes that B has incurred liability to A and also reasonably believes that A is a RP (ie, is insolvent). In that case (para 1(1)) A may give notice to B requesting the insurance information set out in para 1(3)). That information will allow A to determine whether there is a policy in force and, if so, what and how much it covers. If the request for disclosure is not complied with, an application can be made to the court for an order, under para 2(3). There are two potential weaknesses with this provision. The first is that the insured may refuse disclosure and is then able to satisfy the court that there is no insolvency procedure in place: para 2(3) does not say that the court must make an order, so even if absence of an insolvency procedure is not a jurisdictional barrier to disclosure, at best the insured is reliant upon the court exercising its discretion to order disclosure. The second is that there is no insolvency procedure in place, and TP is close to certain that the insured will be unable to satisfy any judgment. However, the Bill does not in that situation permit TP to seek information under clause 1.

  13.3  The only solution under the Bill is for TP to commence proceedings against the assured and to attempt to obtain disclosure of insurance information under the CPR. A further problem arises at the outset, in that the relevant disclosure provision, CPR 18.1—which permits a court to order a party to clarify any matter in dispute or give any additional information in relation to such a matter—appears not to apply to disclosure of insurance information. There are conflicting authorities on the point, with Irwin J in Harcourt v Griffin [2007] EWHC 1500 (QB) adopting a generous view of CPR 18.1, but with David Steel J in West London Pipeline v Total UK [2008] EWHC 1296 (Comm) taking the opposite approach (albeit with undisguised reluctance). The latter view, although restrictive, may be thought to be correct in its analysis that there is no dispute between the insured and TP as to the insurance, only as to its disclosure. Disclosure of a policy and related documents may be obtained during the proceedings, under the disclosure rules in CPR 31, but such disclosure will not reveal whether the insurer has a potential defence under the policy. So, the position as it stands is that proceedings against the insured will have to be initiated and taken to the point of disclosure, but that will secure only limited information. Once the insurer has been identified, it will then be possible to seek information from the insurer (see para 13.5).

  13.4  Perhaps para 1(1)(b) should be amended to read that there is a right to seek information where TP reasonably believes that the insured will not be able to satisfy any judgment or award in respect of the claim.

  13.5 An alternative right to obtain information arises under para 1(2) where A reasonably believes that B has incurred liability to A, that B is insured, that rights have been transferred to A (ie, that B is insolvent) and that there is another party, C, (who who may be, for example, an insurer or broker) possesses the relevant information. In that situation the information may be requested from C. The difficulty is that A may have no idea about B's insurance position, and so is unable to trigger the procedure. In any event, the provision applies only where B is insolvent, and so cannot be used if A merely suspects that B may not be able to satisfy a judgment (even if A knows exactly who the insurers are).

  13.6  If a request for disclosure is validly made, the information to be disclosed is set out in para 1(3)-(4). Under para 2 the information must be disclosed within 28 days, failing which a court order may be obtained. Special provision is made for documents not under the control of C, and for privileged documents.

  13.7  In the case of a direct action against an insurer involving the liability of a defunct company which has not been restored to the register, that information may be obtained from an ex-officer or insolvency practitioner (para 3). Disclosure and inspection then follow (para 4).

  13.8  Policy terms which purport to restrict the right of information are void (para 5). The rights are without prejudice to whatever other rights of disclosure are available under the CPR (para 6). As already noted, the CPR is not likely to be of assistance.

14. FOREIGN ELEMENT

  14.1  It was uncertain how the 1930 Act applied to a case with a foreign element, and in particular whether the policy had to be governed by English law or whether some other link was required (see Irish Shipping v Commercial Union [1989] 2 Lloyd's Rep 144). Clause 18 of the Bill lays down a straightforward rule, which is that if the insolvency procedure is an English one then the Bill will apply irrespective of the place in which liability was incurred, the domicile of the parties, the law applicable to the policy and the place where payment has to be made. The rules relating to the jurisdiction of the English courts over an insolvency are complex in the extreme, although the rules where an insolvency occurs within the EU at least have been agreed.

  14.2  The Brussels Judgments Regulation, European Parliament and Council Regulation 44/2001, contains rules for jurisdiction in insurance cases. In general, under article 9, an insurer can be sued in the country of its domicile or in the country of the insured's domicile Article 11, which deals with liability insurance, lays down the rule (article 11.2) that if a direct action is permitted by the law of the forum, article 9 applies. This has been held by the European Court of Justice to mean that the action can be brought against the insurer in the country where the injured party is domiciled, if local law allows a direct action (FBTO Shadverzekerigen NV v Odenbreit Case C-463/06). The effect of this on the Bill is that if TP is domiciled in England and the insurer is domiciled in an EU (or EFTA) country, a claim may be brought by TP against the insurers in England even though the policy is not governed by English law and even though the right that TP is trying to enforce against the insured is not governed by English law.

  14.3  It is less clear how jurisdictional rules apply if either the insurer is not EC-domiciled or TP is not domiciled in England. That depends upon the English court possessing jurisdiction under one or more of the grounds in CPR Practice Direction 6B.

  14.4  As regards intra-UK jurisdiction, in essence the rules in Regulation 44/2001 are applicable in modified form. However, the matter is put beyond doubt by clause 13, which allows a TP domiciled in one part of the UK to bring an action against an insurer domiciled in another part of the UK in the domicile of either, any contractual provision on jurisdiction being overridden.

15. EXHAUSTION OF FUNDS

  15.1 Where there are competing claims to a limited fund, the insurance moneys can be allocated pro rata or they can be allocated on a "first past the post" basis. The 1930 Act operates on the latter basis (Cox v Bankside [1995] 2 Lloyd's Rep 437) and the Bill does not deal with the matter. This reflects the Law Commissions' decision to preserve the position.

January 2010